How Large Companies Are Exploiting a Loophole in Obamacare

"Skinny" health insurance plans make a mockery of the Affordable Care Act

December 28, 2015

In June 2014, Mary Gass, a
55-year-old employee at a nursing home in Inman, South Carolina, was lifting an
elderly resident out of his bed when she felt a sudden, sharp pain in her neck
followed by what she described as a burning numbness. For weeks, the pain
worsened, leaving Gass unable to perform many of the everyday tasks for the
elderly and infirm people she cared for. After several months, her doctor
advised her to take leave from her job in order to treat a bulging disk in her
neck that was impinging on the nerves in her upper spinal cord. She would need
surgery to repair the disc, but the operation was standard enough to be done at
the local Hospital in nearby Spartanburg.

Yet just weeks before her planned
surgery, Gass—whose income
was dedicated primarily to basics, like food and rent, and who also played a
crucial role in supporting her disabled daughter—says she was stunned to learn that her
employer-sponsored healthcare plan provided by an Indianapolis-based company
called Key Benefit Administrators would only contribute several hundred to the
surgery, which would potentially cost up to $20,000. For years, Gass had been
accustomed to being fully protected against such large bills. “I had been covered for all
these years before,” Gass said. “But this stopped the ball in
middle of the road—it wouldn’t cover crap.”

Earlier that year when the
Affordable Care Act (ACA) began requiring that large employers provide health
insurance to their employees, the nursing home where Gass worked had began
pushing a new insurance plan called KeySolution, which was being offered by Key Benefit Administrators. The
company offers what is known as a “skinny plan,” which exploits what many consider to be a loophole in
the language of the ACA that allows employers to offer employees insurance that
covers strikingly little.

One of the central promises of
Obama’s
signature healthcare law was to prevent Americans from going broke paying for
essential healthcare procedures. But some of the country’s largest health insurance
companies—including
healthcare behemoth UnitedHealthcare—have developed and marketed a variety of plans similar
to Gass’s that allow employers to avoid the expense of doing just that. The
plans exist in a legal gap area that only applies to large employers and often
cover only preventative care options such as check-ups but not things like
hospitalization and surgical operations—the very items that carry the bank-breaking costs from
which Obamacare was intended to shield low-income Americans. Employees like
Gass are exposed to bankruptcy-causing medical bills as if they had no
insurance at all.

A
Key Benefit Administrators document—which was posted online by an Oklahoma-based temporary
staffing agency—shows
in explicit detail just how little the plan covers. Some examples of healthcare items not
covered by the KeySolutions plan, according to the document, are a primary care
“visit
to treat an injury or illness,” diagnostic
tests, hospital stays, emergency care, and both generic and brand drugs. The
plan does cover preventative care, screenings, immunizations and prenatal
exams.

A 2014 “webinar” about
skinny plans that was jointly presented by UnitedHealthcare and an insurance
brokerage and consultancy called Crawford Advisors, lauds the
cost-effectiveness of the plans, as I’ve previously
reported. Employers “can offer preventive-care benefits like doctors’
visits and generic drugs without offering much in the way of care,” states
the Crawford Advisors portion of the presentation, “and they are
considered to be offering insurance coverage.”

Several firms that promote skinny
plans online did not respond to requests for interviews. One broker who
responded said that he would only consent to an interview under the guarantee
that the article would present the plans in a favorable light. (I said no.) Citing
confidentiality, Key Benefit Administrators declined an interview request
regarding its skinny plan and did not answer a list of questions sent by email.

But, in general, insurance brokers
who sell the plans argue that low-wage employees jump at the opportunity to buy
the inexpensive coverage, which prevents them from getting fined for having no
insurance at all under the ACA’s individual mandate.

Labor groups fear that many
employees, believing that they are entitled to certain protections under the
new health law, will enroll in the skinny plans from their employers without
understanding just how minimal the coverage is. (Voices within the industry have also expressed this concern.) “It violates the spirit of the
law: that everyone needs to contribute in order to have a functional health
care system,” said Anthony Wright, The Executive Director of Health
Access California, a statewide advocacy coalition for consumers in healthcare. “To allow some employers to
exploit loopholes, that’s unfair to their competitors.” Wright
even objected to the common term for the plans. “‘Skinny’ is too kind a word for them,” Wright
said. “This
just fundamentally isn’t coverage. It’s junk. It’s fake. It doesn’t provide what
people understand coverage to be.”

State lawmakers have taken notice.
In October, California governor Jerry Brown signed into law a bill, lobbied
for by Health Access, that bans skinny plans. (The year before, Brown had vetoed a similar law,
which also had backing from a coalition of labor organizations, after opposition from the state’s insurance industry.)

Under the ACA’s employer mandate, any large
business that does not offer its employees health insurance that satisfies the
health law’s “minimum essential coverage”—that is, an array of
preventative care options that all insurance plans must help cover—will be exposed to an automatic $2,000 fine per employee. If the employer offers insurance that
contains these preventative basics but does not meet the minimum standard of
affordability for real medical care—i.e. a skinny plan—the employer is liable for a $3,000 fine but only for
each employee who foregoes the plan and instead goes to a state healthcare
exchange for subsidized insurance. And the companies are wagering that most
workers won’t forgo
the company plan, however poor it is, Thus, employers have a direct financial
incentive to flout the law.

Employers can dodge even the
lesser penalty by offering employees the option of purchasing an add-on
plan to bring the skinny plan into the compliance with Obamacare’s affordability metric.
Heading into the new year, this appears to be the prevailing strategy for skinny
plans. Gass said that she could have bought a skinny plan add-on, but did not
fully grasp how exposed the original plan left her and did not opt for the
additional coverage.

Gass was unable to afford the
surgery and had to stop working. She now lives off of public disability
payments, and hopes to enroll in Medicaid next year, a step which she believes is
not guaranteed to help her pay for the surgery she still needs. “It’s been devastating,” Gass said.
“‘You
don’t know
what your gonna do; it’s like your holding onto a rope and you’re about to fall off.”